Redfin Survey: Just 6% of Homebuyers Would Cancel Plans to Buy if Mortgage Rates Surpassed 5%

Copy Link to Clipboard

Press Ctrl / CMD + C to copy this to your clipboard.

A late-2017 Redfin-commissioned survey of more than 4,000 people who bought or sold a home last year, attempted to do so, or planned to do so soon revealed the following key findings related to the housing market and the economy:

Only 6% of homebuyers said they would cancel their plans if mortgage rates surpassed 5%.

The tax reform debate may have fueled anxiety as high taxes were the most common economic concern, cited by 38% of respondents.

77% said they expect home prices in their area to rise in the next year.

This is the second in a series of three reports Redfin will issue based on the survey. The first, focused on politics and society, is here.

Just 6% of homebuyers said they would cancel their plans to buy if mortgage rates surpassed 5%.

Prospective buyers were unfazed by the prospect of rising mortgage rates. As mentioned in Redfin’s 2018 predictions, mortgage rates are expected to rise in the coming year. After hovering below 4 percent at the end of 2017, the average 30-year fixed mortgage rate surpassed 4 percent in January and has been steadily rising, reaching 4.32 percent at the time of this report’s publication.

Twenty-seven percent of respondents who plan to buy a home in the coming year said that a 5 percent mortgage rate would slow their plans to buy, down two points from responses to a similar question in May.

Only 6 percent of respondents who plan to buy a home in the coming year said that a 5 percent mortgage interest rate would halt their plans to buy, a modest one-point increase from responses to a similar question in May. Meanwhile, 21 percent said they would look in other areas or buy a smaller home, up three points from May. A quarter said such a hike would have no impact on their plans, consistent with our last survey.

The late-2017 tax reform debate may have fueled anxiety as high taxes were the most common economic concern, cited by 38% of respondents.

When the survey launched in early November, a Senate tax reform bill proposed a complete repeal of state and local tax deductions. At that time, there was a great deal of uncertainty about whether and how legislation would change, and how the possible changes would affect different individuals, particularly those who were in the process of buying or selling a home. Final changes to tax code for 2018 resulted in a $10,000 cap on state and local tax deductions.

When asked about concerns facing the U.S. economy, the most oft-cited response was high taxes, with 38 percent choosing it among their top three concerns. Affordable housing ranked second at 33 percent, followed by the income gap between the rich and poor, as cited by 28 percent of respondents.

Not surprisingly, respondents in California, where residents pay among the highest state, local and property taxes in the country, were even more likely to name high taxes as a top concern, cited by 43 percent of San Franciscans, 45 percent of San Diegans and 42 percent of Sacramento-based respondents. Surprisingly, less than one-third of Los Angelenos cited high taxes as a top concern, though it was still the most common response, followed closely by affordable housing with 30 percent of respondents.

By contrast, affordable housing was the most frequently cited economic concern among respondents in other parts of the country including Seattle (45%) and Portland (44%), where the income gap between the rich and poor ranked second and high taxes ranked third. Affordable housing also ranked highest among Denver-based respondents (46%), with high taxes following behind (30%).

In 2018, we expect tax reform to accelerate the migration pattern we saw last year, away from expensive coastal cities and toward more affordable inland communities.

77% of respondents said they expect home prices in their area to rise in the next year.

The vast majority of respondents agreed that home prices will continue to rise in 2018. Only 6 percent of respondents said they expect any decline in prices, and only 1 percent said they expect prices to fall significantly. Most respondents (52%) said they expect prices to rise slightly, while another 25 percent said they expect a significant increase in prices and 17 percent said they expect no change at all.

“Tight credit, lack of inventory and high demand are the major factors that tell us there’s no housing bubble, despite rapid price increases,” said Redfin chief economist Nela Richardson. “There are still many more buyers than the current housing supply can support, with no major relief in sight. Strict lending regulations make it much harder to buy a house you can’t afford than during the housing boom a decade ago. Finally, still-low interest rates somewhat offset high prices for some buyers.”

Copy Link to Clipboard

Greg studied literature in writing at the University of Arizona and has spent a decade writing for a variety of brands and exploring life in America’s big cities. Before Redfin, Greg was a data journalist in the market research industry, writing about cultural trends, climate change, and politics. His dream home would be a viking hall in the mountains of Vermont, with a zipline back to Brooklyn.